Friday, January 26, 2007

New Home Sales Increase 4.8%

New home sales in the U.S. rose more than forecast in December, showing the real-estate market is improving following its biggest slump since 1990.

Sales rose 4.8 percent to an annual pace of 1.12 million in December, the most since April, from a 1.069 million rate the prior month, the Commerce Department said today in Washington. For all of last year, sales dropped 17 percent, the biggest decline in 16 years, to 1.061 million from a record 1.283 million in 2005.

Buyers were lured back into the market after builders cut prices and sweetened incentives. Combined with more jobs, rising incomes and still-cheap mortgage rates, the sales increase may give companies such as Lennar Corp. reason to be more optimistic on the outlook for this year

Looking at the numbers from the Census Bureau, there are two large gains in the Midwest and Northeast -- which each increased 27% from November levels. I am guessing that unseasonably weather weather had something to do with these increases. Finally, these numbers to not completely comport with the slew of horrible homebuilder announcements this quarter, a majority of which have been horrible. I speculated that homebuilders may be front-loading bad news into their reports -- that is, adding a ton of bad news to an already bad quarter simply to get it over with. We'll have to wait and see if this is the case.

(From Bloomberg) The median price of a new home fell 1.5 percent in December, to $235,000 from $238,600 a year earlier. The median price of $245,300 for all of 2006 was 1.8 percent higher than the previous year.

The number of homes for sale at the end of the month fell to 537,000, the fewest since January, from 542,000 in November. That left the supply of homes at the current sales rate at 5.9 months' worth, compared with 6.1 months in November.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories.

Such incentives are not subtracted from the sales price reported to the government. Sales are reported when a contract is signed, not at the closing of the sale.

What's more, many of the nation's home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.

The drop in inventory is a welcome development. The huge inventory overhang over the last year has been very concerning. However

However, the inventory of completed-but-unsold homes rose to a record 172,000, up about 50% in the past year. With builders having to carry the costs of those vacant houses, housing starts should weaken further this year until the inventory is worked off, Moody said.